Global economic recovery abates
Global economic activity is being curbed by high inflation and by tight financing conditions. Despite the brisk growth in services in the main economies, activity is affected by the weakening of the manufacturing cycle, which is contributing to reducing the growth prospects for global trade and commodity and energy prices. The lower contribution of the energy component is matched by the fall in consumer price inflation in most of the leading industrial countries. However, core inflation is still struggling to come down.
Monetary tightening continues in the main advanced economies
After a rise in May, the Federal Reserve left its benchmark interest rates unchanged in June, although it indicated that it might raise them over the next few months; the Bank of England instead stepped up its restrictive stance. Following the turmoil connected with the banking crisis episodes in the United States and in Switzerland, conditions normalized in the international financial markets.
The weak cyclical phase continues and inflation goes down in the euro area
In the first quarter of this year, euro-area GDP declined slightly for the second consecutive quarter and, according to our estimates, stagnated in the spring. The further decrease in manufacturing activity was partially offset by the expansion in services. Employment continued to increase and wage growth gathered pace. Consumer price inflation declined again but core inflation remains high. The Eurosystem staff projections indicate that consumer price inflation is expected to return close to the 2 per cent objective in 2025.
The ECB raises its key interest rates again
Between May and June, the Governing Council of the European Central Bank raised its key interest rates by 50 basis points overall. Decisions on interest rates will continue to be made on a meeting-by-meeting basis, taking account of data as they become available, so as to achieve a timely return of inflation to the objective. The Council confirmed the end of the reinvestments under the asset purchase programme, starting from July, as well as full, flexible reinvestments under the pandemic emergency purchase programme, at least until the end of 2024. The yields on ten-year government bonds rose slightly in the euro area, while the spreads with the corresponding German bond moved heterogeneously across countries, narrowing in Italy.
GDP growth in Italy appears to pause in the spring
According to our estimates, GDP remained broadly unchanged in the spring, above all because of the contraction in manufacturing activity, which was affected by the weakening of the industrial cycle at global level. The expansion in household consumption continued at a slower pace. Investment was held back by tighter financing conditions and by a less favourable outlook for demand.
The current account balance improves, benefiting from the reduction in energy product costs
Exports have declined in volume since the start of the year, reflecting the weakness of world trade. However, the current account balance has improved, partly thanks to the reduction in international energy prices. Foreign investors have shown keen interest in Italian portfolio securities. The net international investment position remains positive.
Employment continues to rise, wage growth steps up, and profit margins go up slightly
The expansion in the number of persons employed has continued. The participation rate continues to rise and the unemployment rate has decreased. Wage growth is expected to strengthen over the remainder of the year, though remaining lower than the rise in prices. Profit margins are rising slightly: they have returned to pre-pandemic levels in manufacturing, while they are still lower in construction and in services.
Consumer price inflation continues to fall
Consumer price inflation fell further in the spring, thanks to the sharp decline in the energy component, although it remains high. The first falls in inflation were recorded in relation to food and non-energy industrial goods, and in June, to services as well. Households and firms expect inflationary pressures to ease further.
Bank loans decrease and the cost of credit rises
Loans to the non-financial private sector decreased further between February and May, driven by the rise in the cost of credit, the reduced financing needs for investment and the continued tightening of credit standards. The latter are affected by the higher risk perception and the lower risk tolerance on the part of intermediaries. The ratio of the flow of loans in arrears has increased.
GDP is expected to slow in 2023-25; inflation is still high this year but is expected to fall sharply over the next two years
In the update to the three-year baseline scenario, GDP is set to grow by 1.3 per cent this year, 0.9 per cent in 2024 and 1.0 per cent in 2025. Over the next few quarters, recovery will likely be affected by the tightening of financing conditions and by weak international trade. Inflation is expected to reach 6.0 per cent on average this year and go down to 2.3 per cent in 2024 and to 2.0 per cent in 2025, reflecting the effects of the fall in energy commodity prices. Core inflation, which is expected to stand at 4.5 per cent on average in 2023, will reach 2.0 per cent at the end of the three-year forecasting period.
The projections are surrounded by high uncertainty, with downside risks to growth
High uncertainty continues to be a key feature of the macroeconomic outlook. The risks to growth are tilted to the downside and are especially linked to the course of the conflict in Ukraine and to the possibility of a greater than expected tightening in financing conditions. The risks to inflation are balanced and include, on the upside, an incomplete pass-through of the recent decrease in energy prices and, on the downside, a more marked and longer-lasting deterioration in aggregate demand. The risk of a wage-price spiral remains low.
